DISTINCT PERSONS
1.Under GST a concept of distinct person is
added.
2.According to this
concept if a person has obtained or is required to obtain more than one
registration, whether
in one state
or union territory
or more than
one state or
union territory shall,
in respect of each such registration, be treated as
distinct persons for the purposes of this Act or
3.Where a person who
has obtained or is required to obtained registration in a state or union
territory in respect
of an establishment
has an establishment
in another state
or union territory,then such establishments shall
be treated as establishments of distinct persons for the purposes of this Act.
4.As per Section 25(2)
of the GST Act every person shall obtain one registration per State. Proviso to
section 25(2)
provides that a
person having multiple business
verticals may obtain
separate registration for each business vertical in the
State.
5.Therefore under
GST same establishment
or offices or
branches or godown
which are situated outside the
state are treated as distinct person and inter-state supply also chargeable under GST i.e. IGST is payable here.
6.Therefore, when
two units of the same
business have taken
different registration, then
they will be considered as a
distinct entity/ person as per the GST law. The laws relating to filing of returns and other compliance
procedures shall apply to both of them separately.
7.Hence, Distinct
persons can be :-·An establishment in
India and an establishment outside India·An establishment in
one state or a union territory and an establishment in another state or union territory8.For example,
if A (in
Bangalore) has branches
in Germany and
Maharashtra, the branches
in Maharashtra
and Germany will
both be distinct
persons/ entities. If A has
another component B which is
different from A and has
obtained a different GST
registration, A and
B will be
distinct entities.9.The supply stated
above is covered under Schedule I of the GST Act and as per this schedule, when
a supply is
made between distinct
persons during the
course of business,
it is considered
as a supply even when
there is no
consideration. Therefore these
transactions are considered
as taxable supply.Example-stock transfers
made between distinct
units, even if
without a consideration
will be a taxable supply.10.Another example is
suppose a person have an branch office in Delhi and head office in
Jaipur, some employees of Delhi join personality grooming
services or training services given by the head office in Jaipur than as
per distinct person
both offices are
separate under GST
and therefore GST is
payable here
as per schedule
I, but as
per section 12(4)
place of supply
is Jaipur head
office and CGST and
SGST is charged
by Jaipur office
under this case
and no credit is
available to Delhi branch of such CGST
in this case.11.Therefore under the
above discussion it is clear to us what is the meaning of
distinct persons is and as we
know already that
under only IGST
will be set-off from
CGST and SGST
but CGST credit
of one distinct person cannot be utilized by the
other distinct person for paying CGST liability.
One of the issues in having SGST and CGST structure within GST and which is likely to continue in India is tax on inter-branch supply
In-house service functions such as human resources and payrolls, if carried out from a centre in one state for offices in other states, will attract GST for which it will have to issue an invoice.
A large business based in New Delhi with centralised finance, IT and HR unctions for branches across states would be deemed to be providing support services to the other locations and would need to raise invoices charging GST.
However, adjusting the tax paid on in-house transfers is not an option for companies that deal in goods or services that are exempt from GST. These include sectors such as healthcare and education, which are exempt from GST, and petroleum and liquor, which are out of the ambit of the tax.
The company then approached the appellate body against the ruling, saying that the Authority for Advance Rulings had erred in holding that activities carried out at the India Management Office in relation to employment such as accounting, other administrative and IT systems maintenance, which indirectly benefit units located in the other states, was between distinct persons as per Section 25 (4) of the act and shall be treated as supply as per entry 2 of Schedule I of the act.
“The Appellant has placed reliance on a few CESTAT (Central Excise and Service Tax Appellate Tribunal) decisions to buttress their case. We have gone through all case laws relied upon and hold that the said decisions will not be applicable to the matter at hand since they were rendered in the context of the Service Tax law,” the Appellate Authority said.
Although these rulings are case specific, they have a persuasive impact on tax assessment of other companies under similar circumstances. Tax experts said the salary of employees should not to be added as the employment contract is specifically kept outside the ambit of GST.
Companies will need to undertake a proper transfer pricing study to comply. “The GST council needs to examine this issue in detail and either come up with a clarification or amendment in law so that this concept does not cause undue hardship for the industry,” Jain added.